Our View: City income tax was a bad idea then, and still a bad idea now

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The Daily Telegram - Adrian, MI

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Posted Feb. 6, 2013 at 9:34 AM
Updated Feb 6, 2013 at 11:22 AM

Posted Feb. 6, 2013 at 9:34 AM
Updated Feb 6, 2013 at 11:22 AM

The idea for an Adrian city income tax is back, headed for a Feb. 18 ordinance vote and a likely spot on the May 7 ballot. This is not the answer for Adrian's budget squeeze, and it could cause worse problems.

As in 2009, the city is proposing a 1 percent tax on workers who live in the city. (The tax would be one-half of one percent on workers who live outside the city). What made it a bad idea then still applies.

1. Although it's possible city residents might see their property tax rate cut in exchange, no promises are being made. The point, after all, is a net tax increase.

2. City expenses not related to property tax — such as health benefits and pension costs — keep rising, so it's unlikely that future commissions would resist the temptation to eventually raise property taxes back toward the state limit.

3. The frequent claim that workers living outside Adrian drain city resources without paying for them is largely false. Few receive much from the city, and most work for employers who do pay property taxes. On balance, having these neighboring residents shop, eat and receive medical care in Adrian has positive net effects for the city.

4. For workers living outside Adrian — ineligible to vote in the Adrian elections — a city income tax is a form of taxation without representation. It may be easier to sell to city voters. However, as Flint and other cities with city income taxes have found, compliance can be difficult and there is bound to be backlash.

5. Finally, taxing jobs through an income tax could hurt Adrian's economic development if more employers choose to locate outside the city limits. Not having such a tax is one of Adrian's attractions to businesses looking to locate. Taxing pay, after all, doesn't leave workers with as much to spend locally.

True, Adrian faces more budget problems. Property tax revenue is expected to fall another $175,000. State revenue sharing continues to shrink and city officials expect some losses of business personal property tax revenue to begin. Despite cuts, a budget deficit of up to $375,000 is projected. City officials have discussed dramatic options such as not opening Bohn Pool this season, or eliminating an entire city department, rather than making more across-the-board cuts.

It's also true that this situation is not going away. Even if property values returned to prior levels, it would take years for tax rates to climb back because of their capped annual increases.

Yet a grab for income tax revenue will not fix the underlying problems. Spending exceeds property values. Pensions and health costs keep rising. Businesses are not building the large facilities with the same number of workers as they once did. Adding a tax on those workers' wages will not solve the structural problems. It will likely make them worse.